The encyclopedia · Strategy & Leadership · Strategic decision · 2008–2010
New England buys power reliability three years ahead at auction.
ISO New England's Forward Capacity Market auctions capacity years ahead; the first auction in 2008 secured 32,305 MW and 1,813 MW of new resources.
ISO New England
The solution
A power grid needs not just energy but guaranteed capacity to meet peak demand years later. New England's energy market did not pay resources merely for being ready, so reliability was handled through costly out-of-market agreements.
ISO New England designed the Forward Capacity Market: a three-day auction held in February 2008 procured 32,305 MW for the 2010–11 delivery year. Some 39,155 MW of supply- and demand-side resources competed across eight rounds; 1,813 MW of new resources were selected, over half of it demand-side.
Winning resources receive a capacity payment for committing to be available; the forward horizon lets developers finance new plants and lets demand response compete on equal footing with generators.
Why it worked
- A forward auction gives new capacity time to be financed and built.
- Demand response and efficiency can bid alongside power plants.
- One clearing price reveals what reliability actually costs.
What can be applied
If the market doesn't pay for a needed attribute, create a separate forward market for that attribute — paying for availability, not just energy, and letting price signal where investment is needed.
Aftermath
The FCM has been repeated annually since and became a model for capacity markets elsewhere in North America, though regulators have repeatedly tweaked the design over performance and fuel-security concerns.
Sources
- Wholesale Marketplace Helping to Achieve Long-term Power System Reliability Goals
- Forward Capacity Market
- Demand response and energy efficiency in the capacity resource procurement: Case studies of forward capacity markets in ISO New England, PJM and Great Britain
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